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By Michael Eggebrecht
Hewlett-Packard is restructuring its enterprise IT services business, spending $1 billion on consolidating and automating client data centers and cutting 9,000 jobs over the next several years in a move the company hopes will strengthen the unit's competitiveness.
HP said Tuesday that it plans to consolidate its Enterprise Services division’s commercial facilities, management platforms, networks, tools and applications to create standardized, fully automated data centers. “We’ll build these data centers on our converged infrastructure, and operate them with our industry-leading management software,” said Enterprise Services head Ann Livermore on a conference call.
HP says it will leverage the lessons learned in its own internal data center project -- begun after CIO Randy Mott joined the company in 2005 -- which saw HP reduce its data facilities from 85 to six. While the new initiative will take advantage of HP’s own experience to help clients modernize and migrate applications to the next-generation infrastructure platforms, the consolidation will be smaller in scale. According to Livermore, the 100 data centers devoted to IT services customers will be cut roughly in half. There are “certain clients with data centers dedicated to them that want those data centers to remain dedicated to them,” she said.
HP entered IT services in a big way in August 2008, acquiring EDS for $13.9 billion and rebranding it as HP Enterprise Services last summer. Since the EDS deal, HP has integrated more than 100,000 employees into the organization, said Livermore, and signed more than 26,000 deals -- over 50 of which were for more than of $100 million. She added that client loyalty has improved 4 percent from the second quarter of 2009 to the same quarter this year.
“Over the past 20 months, we focused on integrating EDS and improving profitability,” said Tom Iannotti, SVP and general manager of HP Enterprise Services, in a statement. “Now that the integration is largely complete, we have identified significant opportunities to grow and scale the business.”
As a part of the consolidation process, HP will eliminate about 9,000 positions, but it expects to hire 6,000 people in sales and global delivery centers during the same period, said Livermore, who stressed that attrition will account for some of the job losses. Following the acquisition of EDS, HP announced it would lay off some 25,000 employees over the next three years.
On Tuesday, Livermore said that the integration activities were behind HP, giving the company “an opportunity to further accelerate our competitive advantage.” Over the last five to ten years most of the focus in the IT services industry was on the location of jobs, she said. “We think the next five to ten years is all going to be about who can best use technology to automate the delivery of services."
In regards to the restructuring, Livermore said, “Our employees know it’s the right thing to do, and they’re going to all be after winning in the marketplace.”
HP says it will take a $500 million charge for the project in the third quarter, with the rest coming over the next several years. On the call, CFO Cathie Lesjak said that the company expects to see annual savings of about $1 billion by the end of 2013; $500 million to $700 million will be added to pre-tax earnings, while the rest will be reinvested in the unit.
Livermore pointed to private cloud infrastructure, applications services, and desktop as a service as areas in which HP will seek to invest.
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